TNAG-0426-FCO40-472-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 187

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1 GATHER THERE IS AT LEAST A LEGAL POSSIBILITY OF THE ITALIAN

GOVERNMENT PROVIDING SOME FORM OF COST ESCALATION GUARANTEE AT LEAST FOR COSTS IN ITALY, THEY HAVE NOT BEEN ASKED FOR THIS. THIS

MAY LEAVE A SMALL LOOPHOLE FOR THE ANGLO-ITALIAN GROUP THOUGH NOT

SO FAR LAS I CAN SEE WITHIN THE TIME SCALE.

I WILL BE IN ROME NEXT WEDNESDAY - AND IF IT SEEMS LIKELY STILL TO BE HELPFUL, I WILL EMPHASISE TO ITALIAN MINISTERS THE NEED FOR SOME MOVEMENT FROM THE ITALIAN END. BE THIS AS IT MAY,

HAVING SPOKEN DIRECTLY WITH WILTSHIRE I AM IMPRESSED WITH THE

KEENMESS OF GEC TO SECURE THIS BUSINESS AND WITH HIS ASSURANCE

THAT ON HIS SIDE HE BELIEVES HIMSELF TO BE HIGHLY COMPETITIVE.

GIVEN THE PRESENT EXCHANGE RATE FOR STERLING AND THE NATURE OF

THE JOB IT COULD HARDLY BE OTHERWISE. I AM ALSO CONSCIOUS THAT THE ITALIANS HAVE ALL ALONG BEEN FRONT-RUNNERS ON THE CIVIL

ENGINEERING SIDE. IF THESE TWO HAVE COME TOGETHER AND HAVE TRIED

AS HARD AS THEY HAVE TO MAKE YOU A PROPOSITION BY WHICH THEY FEEL THEY CAN STICK, IT OUGHT TO BE AS COMPETITIVE AS ANYTHING AVAILABLE. THIS MAKES IT DIFFICULT TO BELIEVE THAT THE JAPANESE, WHATEVER THEY MAY BOTH SAY AND BELIEVE NOW, WILL IN THE EVENT BE ABLE TO HOLD TO A FIXED PRICE. IN OCTOBER THERE WAS A 20.1 PER CENT INCREASE

IN THE WHOLESALE PRICE INDEX IN JAPAN COMPARED WITH THE SAME

PERIOD IN 1972. THIS IS THE SHARPEST RISE FOR TWENTY YEARS, THE

EXPORT PRICES INDEX OVER THE LAST YEAR HAS INCREASED FROM 97.8 IN SEPTEMBER 1972 TO 189 IN SEPTEMBER 1973 (199 - 1970). IN THE MANUFACTURING SECTOR JAPANESE WAGES HAVE ADVANCED TWENTY PER CENT

IN THE PRESENT YEAR. IT WOULD BE SAD INDEED IF THE ANGLO-ITALIANS

WERE ELIMINATED AND LATER THE JAPANESE HAD TO BE GRANTED A

HIGHER PRICE TO COMPLETE THE JOB.

DOUGLAS-HOME

FILES:

HEAD HKTOD

HEAD TRED

PS

PS MR. HOYLE

SIR D. WATSON

MR. YOUDE MK. MARSHALL

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COPIES TO:

MR. D.N. ROYCE, DTI

PS TO SECRETARY OF STATE, DTI

A